WASHINGTON — HSBC said Tuesday it will pay $1.9 billion to settle a U.S. money-laundering probe, avoiding a protracted legal battle that would have further embarrassed the British banking giant.

The probe of Europe’s largest bank by market value focused on the transfer of funds through the U.S. financial system from Mexican drug cartels and on behalf of nations such as Iran that are under international sanctions.

Regulators worldwide have put banks under greater scrutiny since the financial crisis and a string of banking scandals highlighted lax practices and a culture of arrogance and entitlement. Money laundering by banks has become a priority target for U.S. law enforcement. Since 2009, Credit Suisse, Barclays, Lloyds, and ING have all paid big settlements related to allegations that they moved money for people or companies that were on the U.S. sanctions list.

HSBC said in a statement that its anti-money laundering measures were inadequate and it had since made strides in beefing up its controls. The bank also said it has reached agreements over investigations by other U.S. government agencies. It also expects to sign an agreement with British regulators shortly.

“We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again,” HSBC Chief Executive Stuart Gulliver said in a statement.

A U.S. law enforcement official said the investigation by federal and state authorities will result in HSBC paying $1.25 billion in forfeiture and paying $655 million in civil penalties. The $1.25 billion figure is the largest forfeiture ever in a case involving a bank. Under what is known as a deferred prosecution agreement, the financial institution will be accused of violating the Bank Secrecy Act and the Trading With the Enemy Act.

Under the arrangement, HSBC will admit to certain misconduct, the official said, but the details of those admissions to be made in a New York court were not immediately available. The official spoke on condition of anonymity because the source was not authorized to speak about the matter on the record.

The agreement means the bank won’t be prosecuted further if it meets certain conditions, such as strengthening its internal controls to prevent money laundering. The Justice Department has used such arrangements often in cases involving large corporations, notably in settlements of foreign bribery charges.

Experts said banks such as HSBC have a strong interest in settling out of court to limit damage to their reputations. On Monday, Standard Chartered, another British bank, signed an agreement with New York regulators to settle their money laundering investigation with a $340 million payment. The bank was accused of scheming with the Iranian government to launder billions of dollars.

“These banks are operating in an environment where you can’t afford to have uncertainty attached to your name, and they are dependent on confidence from their investors. And that makes them keen to get past such events very quickly and settle,” said Sabine Bauer, director of financial institutions at Fitch Ratings.

Among other European banks to have settled money-laundering cases with the United States:

— Credit Suisse, Switzerland’s second-largest bank, agreed to pay $536 million. The authorities said the bank violated U.S. economic sanctions by hiding the booming illegal business it was doing for Iranian banks.

— Barclays paid $298 million. The big British bank allegedly engaged in $500 million in illegal transactions with banks in Cuba, Iran, Libya, Sudan and Myanmar for more than a decade.

— Lloyds, another major British bank, agreed to forfeit $350 million for allegedly helping customers skirt U.S. sanctions on business transactions with Sudan, Iran and Libya.

— Big Dutch bank ING paid $619 million to settle charges that it secretly moved billions of dollars through the U.S. financial system on behalf of Cuban and Iranian customers.

Last summer, the Senate investigation concluded that HSBC‘s lax controls exposed it to money laundering and terrorist financing.

In regard to HSBC and Mexico, the Senate investigative committee reported that in 2007 and 2008 HSBC Mexico sent about $7 billion in cash to the United States. The committee report said that large an amount of cash indicated illegal drug proceeds.

HSBC affiliates also skirted U.S. government bans on financial transactions with Iran and other countries, according to the report from the Senate Permanent Subcommittee on Investigations. And HSBC‘s U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh thought to have helped fund al-Qaida and other terrorist groups, the report said.

The report also blamed U.S. regulators, claiming they knew the bank had a poor system to detect problems but failed to take action.

Sen. Carl Levin, D-Mich., the committee chairman, cited instances in which HSBC had promised to fix deficiencies after being sanctioned by regulators but failed to follow through.

Levin also said the Office of the Comptroller of the Currency, the U.S. agency that oversees the biggest banks, tolerated HSBC‘s weak controls against money laundering for years and said agency examiners who had raised concerns were overruled by their superiors.

HSBC had a 2011 net income of $16.8 billion and operates in about 80 countries around the world. It grew quickly in recent years by acquiring banks around the world that became its affiliates. Its far-flung affiliates operated with a degree of autonomy that left top bank officials with less than full authority and control, experts say. Each affiliate had its own officer to oversee compliance with laws to prevent money laundering.

Nigel Morris-Cotterill, head of the Anti Money Laundering Network, a consultancy, said international banks face conflicts between laws and regulations in different countries. “There are times when the lines are blurred, when you’re not clear exactly where the edge is,” he said. “If you step over the edge you get slapped, but often you don’t know where the edge is.”

HSBC, which changed its senior management last year, said it has taken actions to strengthen and centralize compliance with anti-money-laundering laws.

“The HSBC of today is a fundamentally different organization from the one that made those mistakes,” said Gulliver, the bank’s CEO. “Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters.”

On Monday, HSBC announced that Robert Werner, a former head of the Treasury Department agencies responsible for sanctions against terrorist financing and money laundering, is taking a new position in HSBC as head of group financial crime compliance and group money-laundering reporting officer. Werner has been head of global standards assurance since August.

In January, HSBC hired Stuart Levey, a former Treasury undersecretary for terrorism and financial intelligence, as its chief legal officer. And a former policy adviser in the Obama administration, Preeta Bansal, in October became HSBC‘s global general counsel for litigation and regulatory affairs.

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